Topline
The federal government will not bail out the “investors and owners” of Silicon Valley Bank, Treasury Secretary Janet Yellen said Sunday on Face The Nation, saying the situation is different from the 2008 financial crisis, as the tech industry reels from the bank’s sudden collapse amid fears of broader financial industry contagion.
U.S. Treasury Secretary Janet Yellen delivers remarks at the National Association of Counties … [+]
Key Facts
When asked about the possibility of a bailout of Silicon Valley Bank, Yellen noted that in the 2008 crisis, “there were investors and owners of systemic large banks that were bailed out” but said, “we’re not going to do that again,”
The government is “concerned about depositors, and we’re focused on trying to meet their needs,” she said.
Though she said she could not go into details, Yellen said “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” and noted an acquisition of Silicon Valley Bank is one option the Federal Deposit Insurance Corporation (FDIC) is considering.
Yellen suggested there would not be ripple effects from the collapse, saying “the American banking system is really safe and well-capitalized, it’s resilient.”
Meanwhile, Sen. Mark Warner (D-Va.)—a member of the Senate Finance Committee—told ABC’s This Week “the best outcome” would be for Silicon Valley Bank to find a buyer before Asian markets open late Sunday, adding that he’s “optimistic.”
Crucial Quote
“In the aftermath of the 2008 financial crisis, unique controls were put in place, better capital and liquidity supervision, and [the banking system] was tested during the early days of the pandemic, and proved its resilience,” Yellen said. “So Americans can have confidence in the safety and soundness of our banking system.”
Key Background
Silicon Valley Bank, which was previously the sixteenth-largest bank in the U.S. and works with many well-known tech industry startups, was closed Friday by California regulators. The crash marks the biggest bank failure since the Great Recession in 2008, and it caused share prices of other similarly sized banks like First Republic to take major hits amid fears the collapse could cause contagion to other banks. The bank’s rapid collapse was linked to the Federal Reserve’s recent push to control inflation by hiking interest rates, which reduced the value of Treasuries held by the bank and caused many of its tech clients to withdraw their deposits as startup funding became scarce. On Wednesday, it was announced the bank had sold $21 billion in securities at a loss of $1.8 billion, as it scrambled to deal with withdrawals. The FDIC created the National Bank of Santa Clara to protect insured depositors, but the vast majority of the bank’s deposits aren’t insured by the FDIC, which only guarantees up to $250,000 per account, leading to calls for another bank to acquire Silicon Valley Bank and make its depositors whole. Companies including Roku, Roblox and Circle held funds in SVB before it closed. The tech sector had already faced layoffs over the last few months, and on Wednesday, cryptocurrency bank Silvergate also shut down, leading to widespread concerns about the industry overall.
Contra
Some investors and Silicon Valley notables have pushed for more direct federal action in response to Silicon Valley Bank’s collapse. Billionaire hedge fund titan Bill Ackman argued on Twitter the government should have “stepped in on Friday to guarantee SVB’s deposits,” and venture capitalist David Sacks said Yellen and Fed chair Jerome Powell should “announce that all depositors will be safe” and “place SVB with a Top 4 bank.” Sacks later tweeted: “I’m not asking for a bailout. I’m asking for banking regulators to ensure the integrity of the system.”
Further Reading
What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008 (Forbes)
SVB Shut Down By California Regulator After Bank Stocks Crash Amid Turmoil (Forbes)
Source: https://www.forbes.com/sites/marisadellatto/2023/03/12/yellen-rules-out-bailout-for-silicon-valley-bank/